Thursday, May 30, 2013

Corporate Innovators at the cusp of the next iteration

The more I read innovation surveys and comments from analysts and executives, the more I wonder about management thinking.  Recently Accenture published a nice survey of 519 executives in firms in the US and in Western Europe.  The survey repeats what many of us have known for years:  executives recognize the importance of innovation and are frustrated with the results.  According to the survey 93% of the executives surveyed felt their firms would depend on innovation for growth, but less than 20% believe their innovation strategy is delivering a competitive advantage.  These two critical points identify what is perhaps the most significant trap in corporate innovation:  the unrealistic expectations of return on innovation.

If we were to stop for a minute and contemplate the timescales for innovation, things might become a bit more clear.  For many firms, regardless of when the idea is generated, it will take several years to develop a new product, prepare it for launch and provide it to customers.  Then, after the launch, it may take another year or two before the new product reaches break even and begins to generate real profits.  So, from the generation of a new idea till the recognition of profits and differentiation from the new product or service, it's reasonable to expect the timeframe to span three, four or even five years for fast turn products, and even up to seven or eight years for products with longer development cycles.

Add to this the fact that many companies don't "bet the farm" when they start innovation activities, for several reasons.  First, no one wants to take on too much risk on unfamiliar and untried innovation tools and systems.  There's always an argument for "low hanging" fruit as the first innovation initiative.  Second, many firms single thread innovation activities, due to resource constraints, budgetary issues and general change management.  This means that for many organizations, their first foray into innovation is by definition a line extension.  Further, many innovators conduct serial innovation activities rather than attempt to run several innovation activities in parallel, due to the constraints mentioned above.  This means that not only are the first attempts line extensions, but due to the limited number of initiatives, few products are developed.  Add to these the fact that it can take several years for even simple line extensions to move through a tightly constrained organization, and three to five years on the CEO may be scratching his or her head, wondering where all the innovations are that they demanded and were promised.

From the tiny acorn mighty oaks grow

There's absolutely nothing wrong with incremental, controlled experiments to test new philosophies and methods, and the innovation results we are seeing now are simply the first harvest of careful innovation activities.  What will be telling for future innovation is whether or not executives recognize the fruit of their planting, and decide to extend and expand the activities, and hopefully accelerate them, or deem the whole activity a failure.   The limited supply and constrained result of innovation activities to date is entirely predictable.  After all, the vast majority of corporations have spent 30 years building highly efficient business processes, cutting costs and eliminating risk and uncertainty.  Over the last few years some executives have planted tenuous innovation programs or activities that have trouble grafting on to the efficient working and activities of modern streamlined business models.  It's not unreasonable or shouldn't be unexpected that the first innovation harvests are small.  But, as the old saying goes, mighty oaks grow from tiny acorns.  All it will take is time.

Compare these results to the people who examined the possibilities of some of our most important inventions.  After the luster of manned flight by the Wright brothers wore off, I'm sure there were many people who argued that the plane only flew a couple of hundred yards and could barely carry a single person that distance.  A good horse could cover the same ground in less time!  What those naysayers failed to see, and what corporations are at risk of today, is that the first harvests are always thin, but continued investment and development can lead to far greater results and outcomes. 

From furtive experiment to critical capability

Corporate innovation is simply in its initial phases, in many cases as furtive, inexpensive experiment in one small corner of the business, underfunded and poorly resourced.  Expecting miracles from this small experiment is unreasonable, but not surprising.  Executives are realizing that while their organizations are exceptionally efficient, they cannot cut their way to growth and differentiation.  Innovation is vital because it adds to the top portion of the income statement, rather than cutting away at the bottom end.  What's important now is a continued investment, a growing investment and engagement in innovation, to shift the concept from a furtive experiment tucked away in a corner to a central, critical, consistent capability.  Just as a few Six Sigma "black belts" entered organizations years ago and now dominate corporate philosophy and thinking, innovation is a nascent experiment that must be expanded and must become a cultural phenomenon.

Many writers and analysts, this one included, hold up Apple as the arbiter of good innovation practice.  What people forget is that Apple was near bankruptcy in 1997, and had no other choice but to cut product lines and develop new innovation strategies for survival.  Today, Apple progressed through a series of innovation maturity phases, and is a relatively mature innovator.  Of course they should be good at innovating.  Apple has had almost 15 years of innovation experience to build on.  When executives look at Apple and wish their organizations could innovate like Apple, they fail to see the challenges, investments and time it took for Apple to become a viable innovator. 

Out of sight of the shoreline

The real question for many corporate innovators is this:  now that the first attempts have demonstrated some limited benefit, will they take the next step and expand their innovation efforts?  Will they define larger opportunities, provide more resources, funds and time?  Will they shift innovation activities from the periphery to the center of their organization?

Early sailor never sailed out of sight of the shoreline, because they lacked navigational skills and weren't sure what was out in the deeper ocean.  Sailing near the shoreline was safer but ultimately limiting.  It was only when they took the next step that new lands were discovered.  The same analogy applies for corporate innovation.  Small attempts have been made and they've been moderately successful.  More significant results await if the resources are available and if the organization continues to develop innovation skills and capabilities. 

Many corporate innovators stand at the cusp of important decisions.  In one direction is additional investment to build innovation capabilities and expand the breadth and depth of innovation projects.  In the other direction is the safe and familiar efficient business model, where cutting costs and achieving greater efficiencies lie.  Successful firms will recognize that both capabilities are required, and will invest in developing and maturing an innovation capability.  These firms recognize that corporate capabilities don't grow overnight, and investment is required for multiple years before significant results are achieved.  Many executives will blanch at the investment and decide to "acquire" innovation by purchasing smaller, more nimble competitors or seeking out third party technologies, not realizing the bidding war that will unfold as the number of firms choosing these options increases.
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posted by Jeffrey Phillips at 7:05 AM 0 comments

Tuesday, May 28, 2013

Pareto and Innovation

Some laws or rules are dictated by leaders.  Some laws or rules seem to emerge from the information we gather about our work.  This is the difference between a taxonomy - an imposed framework, and a folksonomy - a framework that emerges from the data.  What's interesting is to understand how "rules" or laws like Pareto's Law applies to innovation, and why it is so constraining.

Pareto's rule or law or principle basically states that 80% of effects come from 20% of causes.  What this means in every day life is that 80% of a sales of a business come from 20% of its customers, or 80% of your output is based on 20% of your labor.  What's interesting in practice is to review the impact of Pareto on innovation.

Product versus everything else

In most organizations, the time and focus given to product innovation is at least 80% of the total time alloted for innovation.  There is a clear Pareto principle at work, although I believe it is often unintended.  Far too many organizations ignore innovation possibilities beyond product innovation, when plenty of examples demonstrate the power and possibility of innovation in business models, channels, packaging, customer experience and many other alternatives.

I think this particular Pareto failure is rooted in Apple's success. Apple's iPod, iPad and iPhone demonstrate product innovation, but Apple is successful based on other kinds of innovation as well - channel innovation (iTunes and Apple Stores), Value network (iTunes and AppStore), customer experience innovation (design).  While we recognize and celebrate the product innovation that Apple creates, we fail to understand the other innovations that actually create much of the value.

Far too many firms spend far too much of their limited innovation dollars and resources focused on product innovation, ignoring possibly more lucrative innovation opportunities in areas like business model innovation, customer experience innovation or channel innovation.

Incremental versus Disruptive

In most organizations, there's a decided emphasis on incremental innovation.  At least 80%, if not more, of the innovation initiatives are focused on incremental innovation.  Often, that's because there is no strategic focus on how much innovation is necessary for growth and differentiation across the three horizons.  Rather than plan innovation investments across the incremental - disruptive spectrum, companies are happy to settle in on small changes to existing products and services with only occasional forays into disruptive innovation.

The problem with this approach is that it is not strategic, it is accidental.  Without clear goals and plans for innovation, Pareto takes over and the vast majority of innovation activities are limited in scope, time and potential value.  While your teams are busy incrementalizing, scores of firms are attempting to disrupt your market or your customers. It only takes one successful new entrant to disrupt your customers or your market, so even if many of the disruptive attempts fails, only one needs to succeed to cause damage to your business.  You need to plan your innovation activities and intentionally distribute them across the three horizons, rather than allow them to clump in incremental innovation.

The same people

In most organizations, Pareto's rule is evident when you examine who is involved in innovation activities.  Typically a small handful of people are deemed to be the "innovators", while everyone else is expected to continue to focus on business as usual.  The handful of people who are considered innovators are often in demand across the business, and so can only spend a tiny portion of their time on innovation, once again demonstrating the Pareto principle.

Whether it's resources, people, dollars or focus, the Pareto Principle seems to be the dominant way of thinking about innovation.  While this is true, I think it is for the most part unintentional.  The Pareto approach to allocating people or time or focus is simply a fallback mechanism when explicit strategies and investments aren't defined.  And while Pareto suggests that 80% of the return comes from 20% of the inputs, it's rare that 20% of the people of an organization are actively involved in innovation, or that 20% or more of the innovation attempted is disruptive. 

Explicit, intentional strategies versus emerging fallbacks

If you truly want more innovation within your company, you need to start with an explicit, intentional strategy and define where and when you need innovation, how much innovation you need over the three horizons and how much innovation should be incremental versus disruptive.  Unless these goals are set explicitly and constantly reinforced, innovators and teams will struggle to achieve bare minimum goals and outputs.  Pareto's principle, or worse, a narrowly focused, poorly resourced activity with bare minimum goals will be the constant refrain.

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posted by Jeffrey Phillips at 7:54 AM 0 comments

Thursday, May 23, 2013

The two most challenging innovation times

In the busy world we live in, people want simplicity.  We desire stripped down, short and to the point products, services and information.  Today the articles that were simplified for Reader's Digest seem too long and detailed for those in a 140 character Twitter driven world.  So I'm here to simplify innovation for you, and to tell you that there are only two periods when innovation is challenging.  Those two times are:  before you have an idea, and after you have the idea.

Placing emphasis on the wrong thing

You see, ideas are simply a way station.  Ideas can be thought of as a false peak.  You'll recognize the concept of a false peak if you've climbed a mountain.  Every time you crest a ridge you think you've reached the top, only to see in the distance a higher peak that may, or may not, be the summit.  Ideas are not the output of innovation, they are an intermediate point, a way station to an onward destination.   But because ideas are simple and tangible, we've placed emphasis on them.  To be honest, ideas are the easy part of innovation.  It's what comes before ideas, and what comes after, that are the real challenges.

What comes before ideas

What comes before ideas is the same set of activities and information that comes before any initiative:  planning, preparation, information gathering, synthesis and decision making.  Ideally someone identifies a key challenge or problem and everyone agrees on scope.  There's nothing really new or unusual here, except that much of the planning and preparation for innovation doesn't happen.  In a rush to get to ideas, we skip over much of what we'd agree is good project hygiene. 

If you've ever tried to force an innovation team through that hygiene, however, you'll encounter resistance.  People will complain that process and scope limit their thinking, reduce the set of ideas, slow them down.  And they are right.  But the best ideas - and remember that ideas are only the midpoint of the activity, not the end result - come from good planning, good interaction and good scope.

What comes after

What comes after a team generates ideas depends on your investment.  How many times have you seen a team generate ideas in a brainstorming activity, clap each other on the back to recognize success and then dump the flip charts into the trash?  Generating ideas is an activity, not an end point.  What comes after idea generation in good innovation practice is a lot of hard work - evaluating ideas, refining them into viable product concepts, testing the concepts with customers and then putting the ideas into development, to launch a new product or service.  That's hard, difficult work even for familiar products and services, leave aside the challenge or resistance encountered for new product ideas.

Many companies, with well-defined Stage-Gate or other product development methodologies struggle to consistently update their existing products.  How difficult must it be to convert even good ideas into new products and services, and further, to launch new products and services into the marketplace?

The Realization

It's only when you or your team realize that ideas are a way point that you begin to understand the real, value added work of innovation.   It's the preparation, planning, trend spotting and customer insight work that leads to good ideas, and its the evaluation, prototyping, refinement, testing and delivery to product development that leads to new product launches.  Innovation is a coherent process, starting with the recognition of needs or opportunities and ending with a successful launch of products customers value.  Ideas form one small part of one important but short activity within the totality of the innovation process, and in fact generating ideas is probably the easiest activity.  Good innovators understand that the real challenges lie before and after ideas.
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posted by Jeffrey Phillips at 6:21 AM 0 comments

Friday, May 17, 2013

The logical limits of product innovation

I wrote a blog piece recently entitled Breaking out of the m(old) for innovation, which attempted to point out that many innovation detractors have it all wrong.  Innovation isn't stalled because we've run out of ideas or out of steam.  There's a deeper issue at stake.  Innovation appears stalled in many industries because the product or service has reached its point of diminishing marginal returns for innovation.   In other words, for many products and services, the next big innovation will be a significant disruption.  You can tell when this is true by watching what is being "innovated" - the base product, or other ancillary features.

There are many reasons why it is easier to focus on channel, packaging or business model innovation rather than core product or service innovation.  As I noted previously, there may be a significant standard to overcome - the internal combustion engine or electricity distribution.  There may be a significant investment that's necessary to move to a new technology, or significant change resistors from customers.  Of course there's always fear of the new or unknown.

So, in order to bring this high falutin concept to regular mortals, we'll resort to the method that many characters use on the Simpsons to explain big ideas to Homer.  We'll relate it to beer.  And, after all, this is a blog post for a Friday.

Back to beer.  Coor's beer, specifically. 

Beer has been brewed for thousands of years.  We know a LOT about how to brew, flavor, package, preserve and distribute beer.  For a while Coors was exotic because it was hard to get east of the Mississippi.  A whole movie with Bert Reynolds was made celebrating the difficulty of obtaining the beer.

So, the question becomes, is there more innovation that can be applied to beer?  We've perfected the brewing of beer.  We've created thousands of types of beer - lager, stout, porter, hefeweizen (my favorite), bock, etc.   Have we reached the point of diminishing returns for beer innovation?  I think the signals are flashing "yes".  Here's why.

Coors recently ran an ad that highlighted the beer can.  The can had three significant attributes they wanted to call to attention.  First, the mountains on the can change color when the beer is cold.  Second, the can has a liner to keep the beer cold.  Third, the can has a new pop-top to improve airflow and drinkability.  All of these things may be labelled "innovation", but they are innovation in packaging, in marketing and in information signalling, not beer innovation.  When you see a brewer place more emphasis on innovation in the pop top than in the beer, then you know we've reached a limiting point.  The next big beer innovation will require a step change in brewing or chemistry.

Note that some of these "innovations" are a bit perverse.  Many beer drinkers will tell you that beer shouldn't be too cold, otherwise you lose the flavor.  And does anyone need a more technical pop-top?  Were there unacceptable incidents of beer spillage or individuals who failed to get the beer from can to mouth previously?

When product manufacturers start innovating the packaging, the information about the product, the channel or the business model, it's a good signal that they've reached a diminishing return on innovation in the product itself, and only a significant disruption will spark new product innovation in the sector. 

Innovation itself isn't stalled, it's simply on hold for the next disruptive evolutionary cycle.  Innovation isn't a smooth, continuous process but a spiky discontinuous process made up of long period of incremental innovation punctuated by short bursts of disruptive innovation.

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posted by Jeffrey Phillips at 7:00 AM 2 comments

Wednesday, May 15, 2013

Creating and Sustaining Innovation Energy

I want to talk today about the energy required to do innovation well - where and when energy is created, why it dissipates and what you can do to sustain it. 

Creating Innovation Energy

Think about the times your organization has the most innovation energy.  Talking about innovation, especially riffing on the "what ifs" is fun.  What if we could introduce a product that made our competition obsolete?  Which of us hasn't had this conversation?  What if we could create a product that allowed me to drop 15 pounds and not expend any energy exercising?  The possibilities are endless, and the enthusiasm we spark when we talk about innovation is infectious.  Pretty soon everyone around you is talking about ideas, solutions, insights to solve wicked problems.  The point I am making is this:  the "potential" energy for innovation exists.  What are you doing to convert it to kinetic, active energy in pursuit of innovation?

Energy is necessary for Work

That's because for all of the talk about innovation, innovation is really about work.  It's about five minutes of dreaming up ideas and 55 minutes of designing, building, deploying ideas and overcoming obstacles along the way, to steal a phrase from Einstein.  Or, to paraphrase another famous inventor and innovator, innovation is often missed because it's dressed in overalls and looks like work.

What's interesting is that most people, and most innovators don't mind work.  In fact good innovators relish a real challenge and understand that a significant amount of work is necessary for innovation success.  Work, however, requires energy, and work that is sustained over a long period of time requires a lot of energy, consistently delivered.  What are the sources of innovation energy after the initial flowering of ideas?  Over the life of an innovation project, where does the energy come from to do the real work of innovation?

In physics we are taught an equation:  work is equal to force times distance.  In the real world, the amount of work is equal to the force (effort and resistance encountered) times the distance (time to completion).  Our work is faced with not only the effort to create new things, but the resistance to new ideas.  Further, we all know that as time increases, risk doesn't simply increase linearly but exponentially.  So we need enough energy to do the work, overcome resistance and sustain effort over the long run.

Where does the energy come from for innovation in this case?  The early excitement quickly dissipates, and innovation work becomes a slog unless the team is constantly re-energized with new energy, new excitement and engagement.  This is often what is missed.  Simply creating a lot of energy at the start doesn't sustain an innovation team, given the work and resistance they'll encounter.  They need to be refreshed and re-energized from time to time.

There's also the energy required to overcome barriers.  Many teams have enough energy to accomplish their goals if there are no cultural or organizational barriers, and we often staff and enable teams as if this were the case.  But where innovation is concerned, there are too many resistors, too many barriers which sap innovation energy and create more work.

Imagine how simple and productive innovation could be if we could harness the energy and enthusiasm of the brainstorming and discussion, with the commitment and dogged determination of true innovators with the ability to remove or eliminate barriers and roadblocks.  That would be a perfect innovation environment:  engaged, committed, energetic team members who are willing to take on the hard, difficult work of innovation, knowing that someone or something will remove any potential barriers or roadblocks that may impede their successful launch of new products and services.  Because I'm here to tell you that no matter what you read about the fickleness of your customer base, internal teams, executive committees and culture kill far more viable ideas than the market could ever hope to reject.

What is the source of innovation energy?

There are several potential sources of innovation energy, and all must be tapped to sustain an innovation team.  The first is the emotional energy and engagement teams feel when starting a significant new opportunity.  This initial burst of energy is important because it launches the team and overcomes initial inertia.  However, like a sugar high that energy is a burst and rarely lasts.  Once the newness wears off and resistance is encountered, innovation becomes like work.  And work requires energy.

The second source of energy is executive involvement and commitment.  In the long dark days of innovation, when the task feels more like a slog than a success, executive commitment and engagement can smooth the way for the team, eliminating barriers and injecting new energy.

The third source of energy is customer feedback and validation of the ideas and concepts.  There's nothing to reinvigorate a team like good feedback and validation from customers - the sense that ideas will matter in peoples' lives.  Testing ideas and obtaining feedback is critical for the success of ideas but also for the engagement and re invigoration of the team.

Source or Drain?

Innovation energy is important to accomplish the work necessary to bring new products and services to market.  So it's important to ask:  is your culture, your management team, your organization a source of innovation energy, or a drain?  Does your organization create and sustain energy for innovation teams, helping them to recharge when they need it most, or does your organization, its culture, decision making, risk avoidance and other characteristics drain energy or worse create barriers that require more energy to complete the task?

If you can create a lot of energy, excitement and engagement in your organization talking about ideas, then you have one third of the challenge overcome from the start.  The next question is:  can your team commit to doing the hard work of innovation?  Gathering trends and customer needs, developing and refining ideas, building and testing prototypes, building and launching new products and services?  Can you sustain the energy of the idea exchange through the hard work necessary to develop an idea?  Finally, can your executive team smooth the way for your work?  Can it remove barriers, add funding and resources, change a doubtful culture?  Is the team willing to risk the launch of new products and services, to disrupt its own or other markets?  If you can build an organization that sustains these three factors, you can sustain innovation.  Finally, can your organization become a place that creates its own innovation energy, rather than a place that drains innovation energy from teams and activities?

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posted by Jeffrey Phillips at 7:43 AM 0 comments

Friday, May 10, 2013

Winning hearts and minds for innovation

One of our clients attended the recent Front End of Innovation conference.  She came away very enthusiastic about innovation.  For her it was enlightening to see how much fun, how much engagement was possible.  She wanted to bring that engagement and infect her culture with it.

This reaction serves as a reminder to me, and to many innovators, that winning innovation is about changing minds as well as hearts.  This "hearts and minds" philosophy traces back to US and British special forces in distant places like Malaysia and Viet Nam, when the military realized that it needed support of the local population to win wars.  For innovation to win over existing processes and existing cultural norms, we have to win both the hearts and minds of potential innovators.

Winning Minds

Winning minds is what those of us who advocate innovation as a process or methodology are typically most concerned about.  Innovation often seems very happenstance or mysterious, with little logical underpinning.  We want to win over those skeptics and help them understand that there is a body of knowledge that support innovation, and that innovation can become a trusted and repeatable capability.  Most corporate types are not won over by emotion, or passion, but by science, repeatability and logic.  We win minds when we can demonstrate a process that can be learned and improved.

But there's a risk associated with simply winning minds.  While we may demonstrate innovation can become a repeatable capability or process, if these tools or methods are new or unusual, there may be a fear factor associated with using them.  Just as many people witness airplanes flying through the air but have a fear of flying, knowledge of the science doesn't necessarily allay fear of the unknown.

Further, we "minds" types need to be careful to recognize that innovation is not a "science".  Good discovery, creativity and often disruptive innovation cannot be completely bottled and is not predictable.  There are methodologies and tools and techniques and perspectives which can be taught, and which can improve innovation outcomes, but they don't create repeatable experiments with identical outcomes.  Innovation will remain to some extent a combination of methods and creativity.

Winning Hearts

Others in the innovation space focus on what I'll call winning hearts.  That is, making innovation and creativity fun, engaging and attractive.  To do this they create fun activities, introduce interesting exercises and engage the "right" side of the brain.  They are trying to inject more playfulness, discovery and open minded thinking into organizations.  They spend a lot of time talking about creativity.  They are interested in winning individuals and teams into an innovation perspective by enticing their interests, their passions and goals. 

But the "hearts" approach neglects methods and tools to make innovation sustainable, and can create a significant amount of cynicism.  If we get people too worked up, too excited about innovation and then fail to deliver tools and methods, or simply fail to engage their ideas, their attitudes will fall far below their initial engagement levels.

Winning both

This isn't an either/or debate.  To win at innovation, you need to convert hearts and minds.   Putting a repeatable process in place for individuals who aren't fully bought in or who have no passion for novelty and change accelerates uninterested people who at best will create incremental ideas and quickly scamper back to work they care about.  Engaging people and building their enthusiasm and creativity without creating a viable outlet and method to engage that enthusiasm leads to anger and disillusionment.  For the best results, you need to infect your culture with the idea that innovation is exciting, engaging, creative stuff that is fun work and that leads to benefits for them and for the business, while demonstrating a method or means to harness that energy in ways that lead to better ideas and more consistent innovation.

The challenge

When we talk to our clients about innovation, we are often guilty of emphasizing the minds over the hearts, and I expect that's because that's what corporations want to hear.  Minds - defining innovation processes, building skills, incorporating innovation methodologies - these things can be done in the short run, on a project basis.  Changing hearts - gaining greater commitment, creating energy and enthusiasm, building creativity - these actions take time and require management commitment and cultural change.  Firms are seeking to create the most impact in the least amount of time, with the best possible results.  Any activity that requires change to the culture is bound to take time and energy, and not necessarily produce the results expected.  But lacking the ability to switch on the "hearts", a minds only campaign can only take you so far.

One question we always ask:  where's the senior executive who influences the culture in the innovation activity?  Where's the CEO and his or her investment?  Where is the communications officer who talks and engages the organization about the changes and, yes, the fun of innovation?  Where is the HR/Talent Management or whatever they call the HR function?  Most innovation teams never engage HR or Talent Management, and that's probably the first mistake.  We run scientific businesses built for scientific solutions based on scientific management - models handed down to us by Ford and Taylor, for a world that expects disruptive solutions, creative options and newness.  We've got to learn to balance the minds aspect of innovation with the hearts component for ultimate success.

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posted by Jeffrey Phillips at 7:15 AM 0 comments

Tuesday, May 07, 2013

Innovation Voices: Attackers and Defenders

If you missed reading the interview with Steve Case on Sunday in the New York Times, you should take a minute and read it.  Go ahead, I'll wait.  Pay special attention to the last question and his response about attackers and defenders.

I initially skipped over the article, because I held Case in high esteem for many years when he was running AOL, and lost a lot of respect for his leadership during the merger with Time Warner.  But the concept of attackers and defenders caught my eye.  Case is absolutely right about this point:

And I realized the world of business really separates into these two groups. The attackers are the entrepreneurs who are disrupting the status quo, trying to change the world, take the hill, anything is possible, and have nothing to lose in most cases. They’re driven by passion and the idea and intensity. Large organizations — and it’s true of Fortune 500s and it’s also true of governments and other large organizations — are defenders. These guys aren’t trying to pursue the art of the possible, how to maximize opportunity. They actually are trying to minimize the downside, and hedge risk. They’re trying to de-risk situations.

 Case is pointing out an age old conundrum:  innovators have an attacking mindset.  They want to disrupt the status quo, change something, create something.  As Jobs said, put a dent in the universe.
Change, disruption and universe dents are a bit more problematic for many larger corporations, and this is why they struggle to innovate.  Once a firm reaches a certain size, has a significant customer base or market share, that firm risks everything by disrupting or attacking.  Larger firms have more to lose.  They can lose in three ways:
  1.  ignoring their base, 
  2. attempting to enter a new market or create a completely new product and failing to do so, and
  3. finally, by being blindsided by new entrants or other smaller firms that seek to put a dent in their universe. 
 No wonder Andy Grove spoke about paranoia, and you'll notice Case does too.  When you are the CEO of a large corporation, every change is fraught with danger.
So, when large firms start to innovate, what do they do?  Look back at the list of potential losses.  The first edict is almost always:  first, do no harm.  Protect our existing customer franchise and market share.  Don't distract, don't disrupt.  Almost all innovation in the existing market space is incremental, leading customers along to the next iteration of products and services they already enjoy.  Next edict:  find a market outside of the one we dominate to disrupt.  So the firm places its biggest bets on entering a market it doesn't know well, with a completely new product or service.  This isn't "de-risking", as Case called it, this is compounding risk.  Ever wonder why innovation seems to produce only very incremental solutions or failed projects that focused on disrupting another market?

Finally, the last bit of effort is given to assessing what competitors or new entrants may be planning to disrupt the existing customer base with new offerings.  Firms are almost always blindsided by market shifts, technical introductions and substitutes for their existing customer base.  That's because they've become defensive minded, thinking that their existing customers "belong" to them in some way, and they've spent the majority of their very limited innovation currency sustaining the core and disrupting some other market.

There's a balance that's needed in larger firms between protecting and defending the core, and innovating and disrupting the core.  Every firm that protects and defends a customer base ends up patronizing that customer base, thinking that only it can deliver what those customers want and need. Often firms believe they understand needs in a market better than customers or consumers do.  But few customers today are that servile or loyal.  They are constantly on the march for the latest offering, the best product, the best value, the newest thing.  Only by retaining the mind of the attacker can a large firm sustain its core business and innovate there as well as elsewhere.

Who has the loudest "voice" in your company - executives who are responsible for maintaining and protecting the core, or executives who want to create disruptive new products and services?  In the vast majority of businesses, there is no contest.  We have entire choirs of executives singing from the defensive hymnal, satisfied with defending the status quo.  This choir is confronted by an occasional solo from one executive who seeks to innovate.  Too much affinity, too much reliance on your existing base is dangerous, because there are many forces at work trying to pry those customers away.  Is the voice of the innovator or attacker as compelling as the voice of the defender in your organization?  Is the voice of the attacker as loud, as consistent and as well funded?  What is the appropriate balance between an attacking, disrupting mindset and a protective, defensive mindset?  Can your organization hold both concepts simultaneously?
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posted by Jeffrey Phillips at 6:50 AM 0 comments

Thursday, May 02, 2013

Breaking out of the m (old) for disruptive innovation

One of the recent mantras for politicians and hand wringers around the political and social scene is the constant refrain that we've reached the end of innovation in specific fields.  After all, when you evaluate, for instance, the automotive market innovation seems stalled.  Cars today are a bit nicer, a bit safer, and a bit more energy efficient than they were in the 1970s, for example, but few drivers from the 1970s would find a car from 2010 strange or unusual, or frankly, very different.  In many areas and many industries it appears that innovation is slowing if not completely stalled.

One of the reasons for this, of course, is that we've reached a diminishing returns point that I'll coin as the Moore limit.  This is a corollary to Moore's Law.  Moore's law of course states that computing power will roughly double every 18-24 months, and that has been the case for years.  But it's possible even Moore's Law will reach a point of diminishing returns based on "line width" that semiconductor manufacturer's can scribe in silicon.  We can add more capability to the same volume of silicon by miniaturizing the circuits, but at some point we'll have to switch technologies in order to continue to shrink the circuits.  Every technology or capability has a limit to which it can be stretched, and then innovation becomes more about the accessories, business models or experiences.  The four cylinder internal combustion engine may have reached a pinnacle in cost/weight/efficiency tradeoffs, so automotive engineers turn to new technologies for further innovation - electric vehicles or other propulsion units.

When pundits talk about stalled or stagnant innovation in specific industries or technologies, what they are actually identifying is that innovation has achieved a logical point of diminishing returns based on existing technologies or capabilities. To gain truly new breakthroughs that deliver disruptive innovation, what's needed is a switch to a new way of thinking, a new technology, a new business model.  When that switch occurs, new innovations will emerge.  What's true in silicon for semiconductors (a change from electrons to light for signalling and switching) will be true in other areas.  Another innovation barrier is that what was at one time beneficial (standards, infrastructure) becomes a lock-in factor.  One reason there's so little innovation in the automotive space is our investment in roads and oil production.  There is a significant investment supporting the automotive industry as it exists today, and a lot of resistance to dramatic innovation in automobiles as a result.

I'd rather fight than switch

When these points of diminishing return occur, many fierce competitors who are 'locked in" to the old way, the old technology, the old mold, will often become friends.  GM, Ford and Chrysler joined together to fight alternative propulsion plants, doing just enough to appease politicians without creating a true alternative power or propulsion system.  NASA's recent decision to partner with Russia on manned space flight over SpaceX is another example.  NASA prefers to rely on what was a competitor (the Russian Space Agency) using existing technology than to make a business model and technology switch to SpaceX.  True, SpaceX is still a nascent competitor, but NASA has simply doubled down on the old, trusted model rather than break out and explore a new model.

Yet another example is the college and university educational model.  The residential, in-class, in-person model was developed when learning was a privilege and few people could afford to attend.  Now, knowledge is pervasive and available on a number of platforms.  The demand for educated workers is growing faster than our traditional collegiate system can sustain, and the current model isn't scalable.  We've reached the limit of innovation within the existing framework and even have some potential alternatives to explore, but powerful forces are working against innovation in the model.  We need to educate more people more effectively and can't be limited to the on-campus model any longer. Competing universities band together to both fight changes in the model and simultaneously explore changes in the model with channel partners like Udacity.

Next, a shift of emphasis

Every product technology, capability or business model will reach a logical limit of innovation within its existing frameworks or capabilities.  When that happens, firms will innovate the packaging, the delivery systems, the accessories.  When GM encountered diminishing returns for innovation of the automobile, they invented and perfected innovations around funding and financing the purchase.  In effect, GM is a now a financial organization that happens to make cars.  I'm waiting for the innovation around the business model, when GM, Ford and Chrysler recognize that people no longer want to own transportation but want it on demand.  But that innovation switch breaks the mold, no longer selling cars but providing transportation options on demand.  As any industry reaches what I've termed as Moore's Limit, the attention turns to ancillary innovation over core innovation, and innovation seems to stagnate.  That's because to continue to innovate at the core, a step change is necessary but the resistance is high.

Finally, Disruption

When you want truly disruptive innovation, you will need to break the mold, step out into completely new technologies, capabilities and delivery systems.  The reason innovation appears to be stagnant in many industries is that few firms are willing to disrupt the existing technology or delivery systems - they have too much at stake to do so, and the few new entrants or substitutes can arise when entry costs are high and new technologies seem so risky or uncertain.  In a time when we are all holding our collective breath over the economic fortunes of the economies of the US and Europe, few organizations are making big bets.  So innovation will appear stagnant until one of several potential events occurs:
  1. a deep pocketed innovator decides to force the issue and break the mold of some of our largest industries.  (SpaceX)
  2. enough potential customers decide that an alternative is required and create it themselves (Open Source) or throw their weight behind an unlikely new entrant (Google Docs)
  3. a revolutionary new technology enters the market that lowers resistance to a step change (I finally get my jet backpack)

I'm convinced that if we could dig up the newspapers from the days of Julius Caesar he had advisors wringing their hands about the lack of innovation in military arms and arts.  After all, the sword and shield were thousands of years old.  Innovation, like evolution, proceeds through long periods of incremental change interrupted periodically by significant disruptions.  We live in a time where those periodic disruptions will occur with greater frequency.  Talking about stagnant innovation is strange to me - innovation will occur, we just need to start looking for the disruption in places that aren't what we expect.  Innovation, especially disruptive innovation, rarely originates in the tried and trusted systems, but on the edges.
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posted by Jeffrey Phillips at 6:39 AM 0 comments